October 30, 2020 – The Debtors notified the Court that their Seventh Amended Joint Chapter 11 Plan of Reorganization had become effective as of October 30, 2020 [Docket No. 1509]. The Court had previously confirmed the Debtors’ Plan on October 14, 2020 [Docket No.1415].

On June 23, 2020, GNC Holdings, Inc. and 16 affiliated Debtors (NYSE: GNC; “GNC” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-11662. At filing, the Debtors, a leading global specialty health, wellness and performance retailer, noted estimated assets of $1,415,957,000, and estimated liabilities of $895,022,000.

The Debtors were represented by Kara Hammond Coyle of Young Conaway Stargatt & Taylor, LLP. Further board-authorized engagements include (i) Latham & Watkins LLP as general bankruptcy counsel, (ii) FTI Consulting, Inc. as financial advisors, (iii) Evercore Group, L.L.C. as investment banker and (iv) Prime Clerk as claims agent.

November 30, 2020 has been set as the administrative claims (including professional fee claims) bar bate.

In a press release announcing the emergence, “Under the Plan, an appointed Plan Administrator will, among other things, wind-down the affairs of the remaining bankruptcy estates, pay allowed claims and resolve disputed claims, and make distributions to creditors in accordance with the terms of the Plan. Thereafter, the Plan Administrator will close any remaining bankruptcy cases, and dissolve and liquidate the remaining debtors in accordance with the Plan.

This announcement follows the acquisition of substantially all of the Company’s assets by Harbin Pharmaceutical Group Holding Co., Ltd. (Harbin) on October 7, 2020, marking GNC’s next step in its brand evolution. Through the restructuring and court-approved sale to Harbin, GNC has optimized its store footprint, improved its financial standing and is now better positioned to meet the strong consumer demand for health and wellness products under Harbin's leadership.”

Plan Overview

According to the Debtors' memorandum in support of Plan confirmation [Docket No. 1352]: “Less than four months after entering chapter 11, the Debtors are prepared, with the support of all their major constituents, to confirm the Sixth [eventually Seventh] Amended Joint Chapter 11 Plan….The Debtors filed these chapter 11 cases with a Restructuring Support Agreement executed by substantially all of their secured lenders — more than 92% of the Debtors’ Prepetition Tranche B-2 Term Loan Lenders and 87% of the Prepetition ABL/FILO Lenders. During the chapter 11 cases, and as contemplated by the Restructuring Support Agreement, the Debtors proceeded down a dual-track path, simultaneously pursuing both a standalone restructuring and a section 363 sale to maximize the value of the Debtors’ estates. 

After an extensive marketing process, that value-maximizing transaction proved to be the sale of substantially all of the Debtors’ assets to Harbin Pharmaceutical Group Holding Co., Ltd (the ‘Sale’), which closed on October 7, 2020….The Debtors are happy to see that the GNC business will continue and that nearly all of their employees have received offers of employment with the go-forward business. With the Sale now consummated, the Plan provides for the wind down of the Debtors and the distribution of the Sale Proceeds as contemplated by the Plan and Sale Documents.

By virtue of the Settlement Motion and related Plan Support Agreement, the Debtors have also obtained the support of their primary unsecured constituents—the Ad Hoc Group of Convertible Notes and the Committee—through a global settlement that the parties agreed to in connection with the Sale and the Plan (the ‘Global Settlement’), memorialized in the Plan Support Agreement executed by the Ad Hoc Group of Convertible Notes and the Committee. Thus, the Plan embodies a consensual resolution of an array of litigable issues that could have sidetracked these cases, driving up their expense by multiples and damaging the Debtors’ business."

Background on Harbin Pharmaceutical Asset Sale

On September 18, 2020, the Court hearing the GNC Holdings cases issued an order approving the $770.0mn sale of the Debtors’ assets to Harbin Pharmaceutical Group Holding Co., Ltd. (the “Stalking Horse Bidder” or the “Buyer”)  [Docket No. 1202]. An executed version of the August 7th Stalking Horse APA is attached to the order at Exhibit A. The Buyer is the Debtors’ largest prepetition shareholder with a 41% equity holding as at the Debtors’ Petition date.

At the debtors' Plan confirmation hearing, Debtors' counsel estimated the tortal consideration to be $780.0mn comprised of $550 million cash; an undisclosed amount of second-lien take-back loans, and about $20 million in convertible and junior notes.

The Buyer has been central to the Debtors’ reorganization plans since the outset of their chapter 11 cases, but a finalized deal remained in doubt. At filing, the Debtors heralded a $760.0mn sale to the Buyer in a press release, which read in part: “Additionally, the Company, a significant majority of the Supporting Secured Lenders, and Harbin Pharmaceutical Group Holding Co., Ltd., an affiliate of GNC’s largest shareholder [41%], have also just reached an agreement in principle for the sale of the Company’s business. The term sheet documenting that agreement outlines a $760 million purchase price for the sale transaction, which would be executed through a court-supervised auction process at which higher and better bids may be presented.”

By the time of the Court’s July 22nd bidding procedures order that deal looked to have fallen apart, with all references to Harbin removed from that order. An objection from the Debtors’ creditors’ committee provided some indication that negotiations were not entirely dead, but the Debtors’ provided little other indication as to where their sales process stood.

In a motion seeking an extension in respect of an APA filing deadline, the Debtors  provided: “In the month since the filing of the Bidding Procedures Motion, the Debtors, the Proposed Stalking Horse Bidder, the Ad Hoc Group of Crossover Lenders, and the Ad Hoc FILO Term Lender Group have worked tirelessly to negotiate and finalize a Stalking Horse Agreement. Despite significant progress and the hard work of the parties, the Stalking Horse Agreement was not finalized by the deadline set forth in the Bidding Procedures Order. However, the parties continued to negotiate after the deadline, and were ultimately able to finalize a Stalking Horse Agreement with the Proposed Stalking Horse Bidder.”

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are in the Plan and/or Disclosure Statement; see also the Liquidation Analysis below):

• Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0 and the estimated recovery is 100%.
• Class 2 (“[Reserved]”). 
• Class 3 (“Tranche B-2 Term Loan Secured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is the collateral amount and the estimated recovery is 98.8% for Sale Transactions. Except to the extent that (i) a Holder of a Tranche B-2 Term Loan Secured Claim agrees in writing to less favorable treatment or (ii) the Required Consenting Term Lenders agree in writing and upon at least 5 calendar days’ notice to the Court prior to the Confirmation Date that Class 3 receive different treatment, each Holder of a Tranche B-2 Term Loan Secured Claim shall, In the event of a Sale Transaction constituting the Harbin Stalking Horse Bid, receive its Pro Rata Share of the total amount of Second Lien Loans issued in connection with the Sale Transaction in a principal amount equal to the Second Lien Loans Amount and Cash held by the Debtors immediately prior to Consummation, less (I) the Class 4/4A Distribution Amount, (II) the Wind-Down Amount, (III) the Class 3 Initial Escrow Amount, (IV) the Class 3 Additional Escrow Amount, (V) an amount for the Disputed Cures Escrow Account, (VI) $250,000 distributed pursuant to Article III.B.4.c(iii)(a), (VII) the Tax Escrow Amount and (VIII) the Exit Cost Amount less any portion thereof that is also included in any of the foregoing. 
• Class 4 (“General Unsecured Claims; Tranche B-2 Term Loan Deficiency Claims; and Convertible Unsecured Notes Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims for the Sale Transaction is $338.5mn and the estimated recovery is 3.0%. The aggregate amount of (i) General Unsecured Claims shall be allowed in accordance with the procedures set forth in Article VII of this Plan; (ii) Convertible Unsecured Notes Claims shall be allowed in the amount of $159.1mn; and Tranche B-2 Term Loan Deficiency Claims shall be Allowed in the amount of the Deficiency Amount. Each Holder of a General Unsecured Claim, Convertible Unsecured Notes Claim and Tranche B-2 Term Loan Deficiency Claim shall receive: (i) in Cash its Pro Rata Share of that portion of the Class 4/4A Remaining Distribution Amount as is directed for distribution to Holders of Claims in Class 4 pursuant to the Committee Election; provided, however, that no Holder of a Convertible Unsecured Notes Claim that is a member of the Ad Hoc Group of Convertible Notes shall receive any cash distribution from the Class 4/4A Distribution Amount and any such right to receive such cash distribution is waived, canceled and of no further force or effect; plus (ii) its Pro Rata Share of the Class 4 Notes Proceeds; and (B) Holders of Tranche B-2 Term Loan Deficiency Claims shall receive no recovery on account of such claims. 

In the event of either a Sale Transaction or a Restructuring: (A) $250,000 of the Ad Hoc Group of Convertible Notes Professional Fees shall be paid in Cash by the Debtors’ estates or the Tranche B-2 Term Lenders on the Effective Date, provided that in no circumstance shall additional amounts be funded by the Debtors’ estates for the payment of Ad Hoc Group of Convertible Notes Professional Fees, whether in connection with a Sale Transaction or a Restructuring, and the rights of the Ad Hoc Group of Convertible Notes and its professionals to seek payment of any portion of the Ad Hoc Group of Convertible Notes Professional Fees shall be reserved in all circumstances other than with respect to a Sale Transaction or a Restructuring; (B) the Ad Hoc Group of Convertible Notes Excess Professional Fees, if any, shall be paid in Cash from the Class 4/4A Distribution Amount on or as soon as practicable after the Effective Date; (C) the Convertible Unsecured Notes Indenture Trustee Professional Fees shall be paid to the Convertible Unsecured Notes Indenture Trustee from the Class 4/4A Distribution Amount on or as soon as reasonably practicable after the Effective Date, provided that the Convertible Unsecured Notes Indenture Trustee Professional Fees shall be deducted solely from the Cash distributions to be made on account of the Convertible Unsecured Notes prior to such distributions being made; and (D) for the avoidance of doubt, the members of the Ad Hoc Group of Convertible Notes shall receive no distributions from the Class 4/4A Remaining Distribution Amount on account of their Convertible Unsecured Notes Claims

• Class 5 (“Subordinated Securities Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is $0 and the estimated recovery is 0%.
• Class 6 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is N/A.
• Class 7 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is N/A.
• Class 8 (“Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is $0 and the estimated recovery is 0%.

Voting Results

Plan voting results [Docket No. 1350] were as follows:

• Class 3 (“Tranche B-2 Term Loan Secured Claims”) 35 claim holders, representing $94,884,118.02 in amount (or 100%) and 100% in number, voted in favor of the Plan.
• Class 4 (“General Unsecured Claims; Tranche B-2 Term Loan Deficiency Claims; and Convertible Unsecured Notes Claims”) 462 claim holders, representing $325,109,972.34 (or 97.55%) in amount and 87.83% in number, accepted the Plan. 64 claim holders, representing $8,179,118.55 (or 2.45%) in amount and 12.17% in number, rejected the Plan.

Significant Prepetition Shareholders

• Harbin Pharmaceutical Group Co.,Ltd.: 41%
• Blackrock, Inc.: 7.1%
• John Y. Tang: 5.85%

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Tolivar Declaration”), Tricia Tolivar, the Debtors’ Chief Financial Officer, detailed the events leading to GNC’s Chapter 11 filing. The Tolivar Declaration is not particularly forthcoming beyond noting what is now well known as to the "challenging commercial environment brought on by increased competition and a shift away from shopping at brick-and-mortar stores" and the impact of COVID-19. The Declaration does point out that its relatively small percentage of e-commerce sales (just 8%) left it particularly vulnerable to COVID-19. The Tolivar Declaration provides: “Over the past several years, retail companies have faced a challenging commercial environment brought on by increased competition and a shift away from shopping at brick-and-mortar stores. While GNC is no exception, it has taken various steps to significantly reduce its funded debt obligations and position its business for long-term success going forward.

The COVID-19 pandemic has caused a sizeable drop in revenue. Due in large part to the pandemic, the Debtors’ year-over-year revenues were down approximately 20.6%, 42.3%, and 39.1% in March, April, and May, respectively. This decline was the result of a decline in sales at US brick and mortar locations of 50-60% during April and May, partially offset by a significant increase in on-line demand of 80% to over 100% during April and May. As the Debtors’ e-commerce business has only been 8% of the overall US business, the surge in e-commerce demand has not been enough to offset the US brick and mortar declines. The Debtors’ International business has also been disrupted with more than 25% of all locations closed during April and May. While June results are improving, based on the performance of the locations that have reopened, the Debtors do not anticipate that the reopening of additional stores will generate near-term revenue that comes close to the Company’s pre-pandemic in-store revenue.

The lack of sales has affected the Company’s ability to expeditiously pay its trade creditors. In response, some trade creditors have demanded more restrictive trade terms from the Company. Some of the more restrictive trade terms, such as the requirement that the Company pay cash on delivery of products from its vendors, have further strained the Company’s liquidity position. While some of these adverse effects were initially counterbalanced with increased online sales, the cumulative effect of these circumstances has been a severe decline in the Company’s liquidity, and shared concessions by nearly all of the Company’s economic constituencies, including the management of trade vendor payments. As a result, certain vendor payments have been delayed in excess of 30 days past historical terms and in some cases even longer."

Prepetition Indebtedness

The Debtors’ funded debt consists of (i) an asset-based revolving credit facility, (ii) an asset-based first-in, last-out secured term loan facility, (iii) a secured term loan facility and (iv) unsecured convertible notes as summarized below:

The Debtors also noted trade debt of $111.0mn

Liquidation Analysis (see Exhibit E to Disclosure Statement [Docket No. 664] for notes)

Corporate Structure Chart (poor image quality as filed, see p. 156 of Declaration, Docket No. 21)

About the Prepetition Debtors

According to the Debtors: “GNC Holdings, Inc. (NYSE: GNC) is a leading global health and wellness brand that provides high quality science-based products and solutions consumers need to live mighty, live fit, live long and live well.

The brand touches consumers worldwide by providing its products and services through company-owned retail locations, domestic and international franchise locations, digital commerce and strong wholesale and retail partnerships across the globe. GNC’s diversified, multi-channel business model has worldwide reach and a well-recognized, trusted brand. By combining exceptional innovation, product development capabilities and an extensive global distribution network, GNC manages a best in class product portfolio. As of March 31, 2020, GNC had approximately 7,300 locations, of which approximately 5,200 retail locations are in the United States (including approximately 1,600 Rite Aid licensed store-within-a-store locations) and the remainder are locations in approximately 50 countries.”

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